My Sister’s Pension Assets and Agency Problems

Jeremy Grantham

Article

1 Pages

GMO’s Jeremy Grantham argues that career risk encourages professional investors to follow peers and benchmarks, reinforcing momentum and pushing assets away from fair value. He presents benchmark-free allocation as a disciplined way to resist herding, navigate bubbles, and identify unusually cheap opportunities.

Key Takeaways

Herding Amplifies Volatility: Fair value moved within 1% of trend two thirds of the time, while market prices moved within 19%.
Constraints Shape Outcomes: GMO outperformed its benchmark by 6.9% in 2008, yet lost 20.8%, while the family pension held 0% equities by July.
Benchmark Freedom Helped: Over 10 years, the Benchmark Free Allocation Strategy generated 1.7 times the annual return with 10% less volatility than GMO’s traditional strategy.
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